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The American Federation of Teachers has a message for hedge-fund managers: You don't like the notion of public pensions? Fine. You don't get to manage ours.

The AFT has published a list of 33 hedge-fund managers that are tied to organizations actively advocating elimination of defined-benefit pension plans in favor of defined-contribution plans such as 401(k)s. Accordingly, the AFT is actively advocating that pensions eliminate these managers from their plans. (Or refuse to hire them in the first place.) The AFT represents 1.5 million members and more than $800 billion in pension assets.

"Pension-fund managers have a duty of loyalty and prudence" to their members, says Dan Pedrotty, one of the authors of the AFT's list. "Is it loyal or prudent to fund your own destruction?"

The AFT singled out three organizations that have actively and stridently opposed pension plans through their publications and political events: StudentsFirst, which issued a "report card" ranking states, in which a state's pension policy was weighted three times as much as any other issue. The Missouri-based Show-Me Institute is part of the State Policy Network, which routinely calls for pension privatization. And a Manhattan Institute publication earlier this year advocated dumping state pensions. The AFT looked at the boards of and donors to these groups, noting the asset managers or related financial institutions.

There was no shortage of big names on the list: Anthos Capital, AQR Capital Management, Clayton Capital Partners, Elliott Management, Khronos, and Third Point. (SAC Capital also made the list, though it's unlikely they're a contender for much in the way of new business these days.)

It was an ugly interaction with Third Point's founder, Dan Loeb, that spurred the AFT to develop this "watch list." Loeb is a director of StudentsFirstNY and a trustee of the Manhattan Institute. AFT President Randi Weingarten asked Loeb to sit down with her and representatives from several other pension plans to discuss his desire to manage pension assets given his "strong support" for StudentsFirst, "an organization which is leading the attack on defined-benefit plans around the country," according to Weingarten's letter. Loeb initially agreed to the meeting, while professing he is "uninformed" and "not an expert on the topic," but later declined to meet, saying, "I'd be pretty useless in a discussion on such an esoteric copy." Loeb declined to speak with Barron's; the AFT provided both sides of the correspondence, which is more extensively—and amusingly—detailed by Rolling Stone's Matt Taibbi.

Pensions have increasingly turned to hedge funds to manage parts of their portfolios; it's been, by far, the biggest trend in hedge-fund inflows. Calstrs, for instance, manages a $165 billion pension plan for California teachers. It has committed 2% of that to hedge funds, but expects to increase that allocation to 5%. That's an $8.3 billion opportunity, from just one pension.

Pedrotty is quick to insist that performance should be the primary criterion in evaluating a hedge-fund manager. But if the performance is comparable, plans are allowed to take other factors into consideration. Plus, Pedrotty notes, "A lot of hedge funds haven't had much in the way of performance."

PENSION MANAGERS AND CONSULTANTS are taking the list seriously, as are the firms that landed on the watch list. Rex Sinquefield, co-founder of the uber-shareholder-friendly Dimensional Fund Advisors, also co-founded and is still president of the Show-Me Institute. Sinquefield retired from DFA in 2005 but remained on the DFA board—until Thursday, that is. "We were caught off guard by this," says DFA co-founder and current CEO David Booth, "Rex is a good guy and wanted to disentangle himself from DFA so he could pursue other interests without worrying about it reflecting on the firm."

AQR is also protesting its inclusion as unfair. Co-founder and managing principal Cliff Asness is a trustee of the Manhattan Institute, but David Kabiller, AQR's other co-founder and head of client strategies, is quick to point out that Asness has nothing to do with the organization's publications. In fact: "It is unequivocal that we are pro defined-benefit plans," says Kabiller, adding that the AFT's list represented a "political agenda" and was "alleging duplicitous behavior" without cause.

Some of the ties are looser than others. What landed
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on the list was a donation made to the Manhattan Institute by co-founder Henry Kravis's foundation, which hardly indicates a KKR agenda. Of the more than $14.3 million the foundation distributed in its 2011 fiscal year, according to Internal Revenue Service filings, it gave $25,000 to the Manhattan Institute.

The AFT expects the list to be a "living" document, Pedrotty says, to be updated at least quarterly, and the organization has already heard from firms planning to issue statements or announce other moves that will likely get them off the list, DFA and AQR among them; KKR has already been removed. One move the AFT is considering, and should implement for the next iteration: Creating tiers or grades to separate the worst offenders from the least.